The US Loses Out On $1 Trillion a Year Due to Tax Evasion, IRS Estimates

The US Loses Out On $1 Trillion a Year Due to Tax Evasion, IRS Estimates

  • Find out what IRS Commissioner Chuck Rettig told Congress about revenue losses caused by tax evasion in the US.
  • Learn more about how President Biden intends to respond to the problem.
  • Discover which tax payers most often commit tax evasion and how.

As part of its oversight role, Congress is constantly assessing the economic health of the United States. So, hearing from Internal Revenue Service Commissioner Chuck Rettig about massive tax losses has spurred action. According to Rettig, the country may be losing up to $1 trillion a year through tax evasion. This is an obvious cause for concern. This estimate equals several times the 3-year-cumulative amount of $441 billion the agency had previously asserted. Fiducial has more on this below!

How does Congress plan to respond to new tax evasion issues?

Recently, Rettig met with the Senate Finance Committee. Rettig informed them, “I think it would not be outlandish to believe that the actual tax gap could approach and possibly exceed $1 trillion per year.” He listed several tax evasion techniques the agency had not included or been aware of. Among them were new technologies such as the use of cryptocurrency. Also included: The more familiar issues such as illegal income, underreporting from pass-through businesses, and offshore tax evasion.

Lawmakers hearing of the disparity between actual collections and projected collections have vowed to take action. Senate Finance Chairman Ron Wyden (Oregon – D) believes we should sound the alarm. Wyden states that the IRS commissioner’s news should serve as a “wake-up call” to these remarkable revenue losses. He believes his colleagues will take action to spur more aggressive tax enforcement. He implied that conversations with Senator Mike Crapo of Idaho, his committee’s top Republican, indicate bipartisan support.

Other senators who have voiced concern include Massachusetts Democratic Senator Elizabeth Warren. She is planning a bill to provide mandatory, steady funding for auditors for the IRS budget. Ohio Republican Senator Rob Portman plans to focus on tax-dodging cryptocurrency supporters.

The US Loses Out On $1 Trillion a Year Due to Tax Evasion

Presidential action

In addition to congressional action, President Joe Biden has included an extra $900 million in his budget proposal to provide for expanded audits. He has also included corporate tax enforcement in his $2.25 trillion infrastructure plan. In addition, he is promoting additional individual tax proposals.

Responding to questions about what his agency needs to improve enforcement, Commissioner Rettig pointed to 17,000 enforcement-related positions lost over the last ten years. He stated that with $1 billion more in funding, the agency could engage in a multi-year process to update outdated computer systems to flag fraud and tax evasion. He would also hire an additional 4,875 front-line audit personnel. “We want to get there, but we do need your help,” he said.

Pointing to the fact that roughly 99% of taxes subject to automatic withholding and reporting are paid while only 45% of those not subject to this oversight are paid, he said that shoring up regulations overseeing tax-return preparers and tax-reporting requirements would close the gap and serve to minimize fraud.

High-income individuals, corporations, and tax evasion

According to a recent study, the richest 1% of Americans do not report or pay taxes on one out of every five dollars they earn. But how is this evasion made possible? By the fact that income from partnerships, limited liability corporations, and other pass-through entities is not automatically withheld in the same way that is done for wage earners. The study’s authors, which include two IRS officials, concluded that eliminating that method of shielding income, as well as offshore structures, would increase the amount of money collected by the IRS by approximately $175 billion each year.

Do you have questions or need additional details related to any of these issues? Call Fiducial at 1-866-FIDUCIAL or make an appointment at one of our office locations to discuss your situation.

Ready to book an appointment now? Click here. Know someone who might need our services? We love referrals!

For more small business COVID-19 resources, visit Fiducial’s Coronavirus Update Center to find information on SBA loans, tax updates, the Paycheck Protection Program, paid sick and family leave, and more.